Project Procurement Management

1. Project Procurement Management

2. Importance of Project Procurement Management • Procurement means acquiring goods and/or services from an outside source • Other terms include purchasing and outsourcing

3. Why Outsource? • To reduce both fixed and recurrent costs • To allow the client organization to focus on its core business • To access skills and technologies • To provide flexibility

4. Project Procurement Management Processes • Procurement planning: determining what to procure and when • Solicitation planning: documenting product requirements and identifying potential sources • Solicitation: obtaining quotations, bids, offers, or proposals as appropriate • Source selection: choosing from among potential vendors • Contract administration: managing the relationship with the vendor • Contract close-out: completion and settlement of the contract

5. Project Procurement Management Processes and Key Outputs

6. Procurement Planning • Procurement planning involves identifying which project needs can be best met by using products or services outside the organization. It includes deciding • whether to procure • how to procure • what to procure • how much to procure • when to procure

7. Procurement Planning Tools and Techniques • Make-or-buy analysis: determining whether a particular product or service should be made or performed inside the organization or purchased from someone else. Often involves financial analysis • Experts, both internal and external, can provide valuable inputs in procurement decisions

8. Make-or Buy Example • Assume you can lease an item you need for a project for $150/day. To purchase the item, the investment cost is $1,000, and the daily cost would be another $50/day. • How long will it take for the lease cost to be the same as the purchase cost? • If you need the item for 12 days, should you lease it or purchase it?

9. Make-or Buy Solution • Set up an equation so the “make” is equal to the “buy” • In this example, use the following equation. Let d be the number of days to use the item. $150d = $1,000 + $50d • Solve for d as follows: • Subtract $50d from the right side of the equation to get $100d = $1,000 • Divide both sides of the equation by $100 d = 10 days • The lease cost is the same as the purchase cost at 10 days • If you need the item for 12 days, it would be more economical to purchase it

10. Types of Contracts • Fixed price or lump sum: involve a fixed total price for a well-defined product or service • Cost reimbursable: involve payment to the seller for direct and indirect costs • Time and material contracts: hybrid of both fixed price and cost reimbursable, often used by consultants • Unit price contracts: require the buyer to pay the seller a predetermined amount per unit of service

11. Contract Types Versus Risk

12. Statement of Work (SOW) • A statement of work is a description of the work required for the procurement • Many contracts, mutually binding agreements, include SOWs • A good SOW gives bidders a better understanding of the buyer’s expectations

13. Statement of Work (SOW) Template

14. Solicitation Planning • Solicitation planning involves preparing several documents: • Request for Proposals: used to solicit proposals from prospective sellers where there are several ways to meet the sellers’ needs • Requests for Quotes: used to solicit quotes for well-defined procurements • Invitations for bid or negotiation and initial contractor responses are also part of solicitation planning

15. Solicitation • Solicitation involves obtaining proposals or bids from prospective sellers • Organizations can advertise to procure goods and services in several ways • approaching the preferred vendor • approaching several potential vendors • advertising to anyone interested • A bidders’ conference can help clarify the buyer’s expectations

16. Source Selection • Source selection involves • evaluating bidders’ proposals • choosing the best one • negotiating the contract • awarding the contract • It is helpful to prepare formal evaluation procedures for selecting vendors • Buyers often create a “short list”

17. Sample Proposal Evaluation Sheet

18. Contract Administration • Contract administration ensures that the seller’s performance meets contractual requirements • Contracts are legal relationships, so it is important that legal and contracting professionals be involved in writing and administering contracts • Many project managers ignore contractual issues, which can result in serious problems

19. Suggestions on Change Control for Contracts • Changes to any part of the project need to be reviewed, approved, and documented by the same people in the same way that the original part of the plan was approved • Evaluation of any change should include an impact analysis. How will the change affect the scope, time, cost, and quality of the goods or services being provided? • Changes must be documented in writing. Project team members should also document all important meetings and telephone phone calls

20. Contract Close-out • Contract close-out includes • product verification to determine if all work was completed correctly and satisfactorily • administrative activities to update records to reflect final results • archiving information for future use • Procurement audits identify lessons learned in the procurement process